How Do You Adjust for a Unique Feature

[Terrel L. Shields]

I recently appraised an executive farm that had a huge shop - 5500 SF, 2 lifts, nearly new, insulated, heated, restroom, 7 overhead doors 10x12. (the builder was in the transmission business before building this after retiring.) Couple hundred acre. The house about 4,500 SF. Two issues. One is basically there is no sold property in the past 2 years with anything similar to the shop - it is obviously over-built but it still contributes value. (I searched 2 counties.) Finding a large acreage tract with a large 20 year old house with a pool was one thing (I did find one excellent comparable for that) but the difference in a hay barn vs this huge shop.

And how would you estimate the contributory value of the shop? Cost related? And where to estimate the functional obsolescence? Hunt three states for comps? (Probably fruitless search.) And what would you use as a proxy for such a shop? A hay barn won't cut it. A 2,000 SF shop without a lift won't cut it. So how would you handle this? Or would you seek a commercial building in town with similar features and extract a contributory value to the sale?

 

[Zephyr999]

Cost approach is the only logical approach here.

I'd probably use proxy buildings to derive depreciation.

This is like an owner-user industrial property except on large acreage.

 

[Red Flint]

Is 1-800-TER-RELL busy?

 

[Terrel L. Shields]

Is 1-800-TER-RELL busy?

August and so far this month have been busier than I want to be so no one is getting squat out of me this week.

 

[J Grant]

I recently appraised an executive farm that had a huge shop - 5500 SF, 2 lifts, nearly new, insulated, heated, restroom, 7 overhead doors 10x12. (the builder was in the transmission business before building this after retiring.) Couple hundred acre. The house about 4,500 SF. Two issues. One is basically there is no sold property in the past 2 years with anything similar to the shop - it is obviously over-built but it still contributes value. (I searched 2 counties.) Finding a large acreage tract with a large 20 year old house with a pool was one thing (I did find one excellent comparable for that) but the difference in a hay barn vs this huge shop.

And how would you estimate the contributory value of the shop? Cost related? And where to estimate the functional obsolescence? Hunt three states for comps? (Probably fruitless search.) And what would you use as a proxy for such a shop? A hay barn won't cut it. A 2,000 SF shop without a lift won't cut it. So how would you handle this? Or would you seek a commercial building in town with similar features and extract a contributory value to the sale?

What is an "executive farm? " It has a couple hundred acres ??

That sounds like most of the value is in the land. Look, this is your area and you are looking at properties all the time. So if almost nobody is building huge shops on acreage /farms with a house IMO it is low demand for it and ext obs over the cost = searching in 3 states is crazy. A one-off sale in another state - is still a one-off sale. If you want to use depreciatged cost, your choice. I'd use it but not rely totally on it totally because the building might be an over-improvement

Does the building of 5500 SF lend itself to other uses if the lifts were removed? I mean how many buyers want a property like that who are also in the auto business, that needs an improvement suited and adapted for that ??
Arent most auto shops in more accessible and less rural areas?

 

[Terrel L. Shields]

Does the building of 5500 SF lend itself to other uses if the lifts were removed?

Yes, but a lesser use. I mean every farmer in the Ozarks would love such a building but they wouldn't want to spend $120,000 or so to build it. We have a lot of properties that an executive from Tyson, Walmart, etc. buy to live a rural lifestyle. Only those kinds of buyers have the wherewithal to afford such a place. If you go to large farms in the upper Midwest, you might see such a shop building, but these are people who are driving $400,000 tractors and have million dollar grain bins and driers on the farm of maybe 2,000 or more acres and they generate an income that can support such operations. They are disappointed when they only make 200 bushels per acre of corn. I mean it is the scale of the thing. It's a nice house with a pool, the shop and a hay barn even larger. As for an "economic" beef operation, the 100 or so momma cows on the place probably don't net much more than taxes and insurance for the place. This is the sort of place an executive would buy who wanted a pastoral lifestyle and ha a job in town (20 miles to Wallyworld for example) that paid in the hundreds of thousands. (Trust me, I have a friend who works for Walmart as an accountant - not even a CPA- and not an "officer" of the company. His base salary is about $200k and sometimes his bonuses double his income.)

But the issue is without a single similar building on a farm that has sold in years, how do you calculate functional depreciation? As for the value, the land component is about 50% and the improvements 50% in total. So do you try to estimate the depreciation by proxy of another type barn - like a fancy horse barn? A roping arena? I have one sale over 3 years ago in the adjacent state where there are FIVE buildings - and those were air conditioned and he worked on and sold different kinds of antique and classic autos. He had 2 lifts on the property but also had other factors. It sold just before Covid so the prices have gone nuts. And my estimate of FO there is probably double what I would consider a worst case scenario for the subject above.

 

[J Grant]

Idk, it's your appraisal!! You can offer someone here a consulting fee lol (or for real )!

But If you think the most likely buyer is an executive, what do they need a 5000 SF auto shop for ??? And how much would they pay for it, if they don't need it ?

A very specialized executive buyer might pay for it, but how many months or years would it take to find that buyer? Just because one gu 3 years abo in an adjacent state likes classic cars and paid X 4....the MV definite is the typically motivated buyer ( not the outlier buyer )

 

[J Grant]

Here is how I often handle these cases - I do not do rural appraisal but have done hobby farms up to 10 acres and have done many oddball properties.

Here is how I look at it because of what I often find in the market - let's say (for example ) the average buyer for a large acreage/rural property is happy with an outbuilding of 2,000-3000 sf. And now you have a subject outbuilding of 5000-5500 sf. How likely is it that the typically motivated buyer would pay extra for the larger building? Maybe yes or not, but it is highly probable that they are unwilling to pay for extra size over what most of them consider adequate for a shop or outbuilding. - in which case I can use comps that are properties with smaller outbuildings and do not adjust for the extra sf because the market is saying at some point the larger sf is an over-improvement or super adequacy

For context, we use I assume the MV definition of a typically motivated buyer, not the one outlier buyer -
The other thing o consider about rural or larger acreage properties is an owner at any time can build extra buildings; they always have that option; they don't need to pay for a building on a property where it might not be the type of building THEY want/ or on the location on the property they would choose.

 

[Terrel L. Shields]

But If you think the most likely buyer is an executive, what do they need a 5000 SF auto shop for ??? And how much would they pay for it, if they don't need it ?

An executive hobby rancher would like the improvement. After all, they buy expensive toys like a big tractor, cattle trailers, and equipment. They might even build something similar but the lifts (which are only a few thousand each) are certainly an over-improvement. It is just not much of this kind of property comes up for sale. Below
The arena is across the road from another tract in the estate but it was a repo and sold by the bank...not good comp.
Green houses and grow operations? Not probably
An ordinary shop that has a more typical value...well, very common, no problem extracting a value there.
This fire station actually sit on a 2,000 acre tract that went into foreclosure and was donated to the local fire dept. I did the gifting appraisal.
Event barn? I can think of several that sit on otherwise ordinary farms.

Unique buildings are a pain to deal with and rarely do you get adequately compensated.

in which case I can use comps that are properties with smaller outbuildings and do not adjust for the extra sf because the market is saying at some point the larger sf is an over-improvement or super adequacy

I am not sure I agree with that. And here a "hobby" farm is rarely less than 40 acres and more commonly 100 or more acres.

 

[J Grant]

I don't appraise that large-scale acreage - hobby farms here are 5-15 acres and are called hobby farms because they want it for their hobby, be it horses, tennis, raising dogs, an outbuilding for vehicles etc. Some just want a nice big property to enjoy

I tend to look at a property as a whole and not get too hung up on one particular feature - if a buyer has horses, do they care if it is a 5-stall barn or a 10-stall barn? If it is a 5 stall barn, they can always expand - on some properties and markets here, they might care a lot about the number of stalls; on others, not at all.

In my experience, "executive" or wealthier buyers have more generous budgets and will overpay ( to an extent ) for a property that meets their overall needs, but a budget-minded or buyer who expects the property to produce income to live on might be more cost-conscious and not pay for odd features or over improvements. Nice looking buildings in your photos!